New rules aimed at curbing the number of class action lawsuits by shifting them to federal court are expected to have a limited impact in Los Angeles, despite the region's reputation among business executives as one of the nation's most judicially unfair districts.
Still, the Class Action Fairness Act of 2005 may create a surge of class action lawsuits filed within California and possibly burden local federal courts with increased workloads.
The legislation, passed by Congress and signed into law by President Bush last month, establishes a complex set of jurisdictional rules that allow more class action cases to be heard in federal, rather than state court.
Plaintiff's firms, which prefer state courts over federal, say the class action law is designed to support businesses that lobbied for the bill.
Over the year, businesses have complained that class action suits have been filed in venues with a history of high verdicts, primarily in state courts in Texas and Illinois. Local attorneys agree that business interests believe they get a fairer shake at the federal level, pointing to a larger jury pool, which in the Central District of California reaches from San Luis Obispo to Orange County.
Add to that a survey released this month by the Institute for Legal Reform, in which Los Angeles Superior Court was mentioned more than any other local jurisdiction as the "least fair and reasonable litigation environment."
Seventeen percent of more than 1,400 corporate attorneys cited L.A. as having the worst state court system in the country, according to the institute, which is part of the U.S. Chamber of Commerce. Only 10 percent cited such complaints about Madison County, Ill., the region where Bush launched his push for the Class Action Fairness Act.
But Los Angeles Superior Court, unlike many other state courts, has an extensive courthouse operation that specializes in business cases. Also, many of the federal courts in California, such as the 9th Circuit Court of Appeals, are less conservative than federal courts in other states.
"It is the largest court system in California and one of the largest in the country, so it's hardly surprising it would generate a lot of comments," said David McDowell, a partner and co-chairman of the consumer class action litigation practice at Morrison & Foerster LLP. "There have been some examples of some pretty large jury verdicts out of this courthouse, and I think those headlines catch people's attention."
Last month, a Los Angeles jury awarded $15.6 million to a former model whose image was used without his permission on Taster's Choice labels. Two years ago, a Los Angeles jury awarded a record $28 billion to a Newport Beach smoker in a case against Philip Morris (the award was later reduced to $28 million).
Must be residents
But most of those verdicts did not involve class action suits, which are subject to the new law.
In general, most plaintiffs in a class action must now be residents of the state in which a suit was filed in order to remain in state court. Class actions seeking more than $5 million in damages instead of the previous $75,000 per class member must be removed to federal court.
(Left unaffected will be securities and employment discrimination class action cases, which already are in federal court. Overtime or wage and hour class actions, which rely on stricter labor laws in California, remain in state courts.)
What will be impacted are a small number of national class actions filed on behalf of consumers of financial services and large product liability cases, such as airplane crashes and pharmaceuticals.
Because of the legislation, some plaintiff's lawyers have been forced to convert their national class action cases to include California residents only.
Karen Barth Menzies, a partner at Baum Hedlund, said her firm has been filing national class actions for the past eight years on behalf of customers of mortgage lenders and title companies who were said to be charged improper fees.
Now, the most recent case against Austin, Texas-based Temple-Inland Inc., may only involve California residents.
"Because statutes around the states are similar, we could bring a national class action," Menzies said. "Now, given the Class Action Fairness Act, we would only stay in California and certify it in state court."
The large number of California residents provides enough financial incentive to file a class action lawsuit within the state, which is not subject to the act.
John Quisenberry, a plaintiff's lawyer at the Quisenberry Law Firm, said he has a pending class action against Wal-Mart Stores Inc. alleging violations of the state's overtime laws on behalf of the retailer's assistant store managers in California. "We're such a big market with a lot of consumers," he said.
New landing site?
Overtime or wage and hour class actions have proven to be expensive to nationwide businesses sued under California laws. Most of those cases involved only California workers but ended up costing businesses millions of dollars in settlements.
In January, State Farm agreed to pay $135 million to settle a class action lawsuit brought in Los Angeles Superior Court on behalf of 2,600 claims adjusters in California, alleging that the insurance firm failed to pay them overtime. Business groups fear more California class actions such as those would be filed because of the new law.
"Because California is so large it may be a landing site for major meritless class action lawsuits," said John Sullivan, president of the Civil Justice Association of California.
As a result, the association, which spearheaded changes to the state's unfair business practices law last fall through a voter-passed initiative, is considering legislation that would change the state's class action laws.
Judges and lawyers fear a possible onslaught of cases that could burden the federal courts, which already face overwhelming workloads. Increased filings might cause delays that would impact their cases, especially given federal statutes that mandate speedy criminal trials and would push civil cases aside.
Chief Judge Consuelo Marshall, of the Central District of California, said she met with the state's Congressional delegation last week to discuss budgetary concerns including those related to the Class Action Fairness Act. The local courts already suffer from two vacancies, with four anticipated by the end of summer, she said.
"We feel there will be increased filings as a result, or an increased amount of time judges would spend on these cases, but we don't know how much additional time," she said. "We feel that's something our policy makers should consider when looking at the budget."
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